Bond issue plan could save millions

Published: Wednesday 31st August 11

The town hall is to explore an innovative and highly cost effective way of funding major improvements to its housing stock over the next 10 years.

The council is to raise money to pay debt that it will inherit from central Government as part of a major shake up of council housing finances.

This radical new way of raising finances is a first for a London borough - although other public sector bodies like Network Rail and Transport for London have used this mechanism to raise capital for major infrastructure projects.

Arranging finances in this way will ensure that the council pays lower interest rates on loans. This could save the town hall between £625,000 and £1m each and every year that the deal is in place.

Traditionally councils have raised finances by borrowing from the Government-backed Public Works Loan Board. However, following last year's budget this agency's interest rates will be higher than the best rates available from the markets.

The move to raise funds in this way follows a Government decision to abolish the current housing subsidy system. Under the existing arrangements some local authorities like Wandsworth are required to pay a proportion of council house rents and the majority of receipts from any sales of land or homes to Whitehall as negative subsidy.

The abolition of the system will be part of wider reforms in this autumn's Decentralisation and Localism Bill that will allow councils to keep rents and receipts from housing sales.

Finance spokesman Guy Senior said: "This is an innovative and radical approach to raising funds that will enable us to make sizeable long-term savings on the current subsidy arrangements.

"By issuing a bond we can raise capital from the markets instead of via the more traditional route of borrowing from the PWLB at a higher rate of interest.

"The intention is for us to issue a bond and repay it all within ten years. This is likely to save us something in the region of £6.4m to £10m over that period. This extra money will then be available to fund additional investment in our housing stock and improving local housing estates.

"The new rules mean the council will be free to keep all the rent it collects and all the money it generates from vacant house sales and the disposal of land. This will have very significant long term financial benefits for the borough and for local tax payers."

In order to obtain the best possible rates of interest the council is to appoint leading credit rating agency Moodys to determine the council's credit rating. As a result of the town hall's careful stewardship of its finances over the years, it will be seeking a 'Triple A' rating.

Once the rating is obtained, the council will employ leading finance players HSBC bank and Morgan Stanley to market the bond.

Cllr Senior added: "This is new territory for local government although other arms of the public sector have used this type of mechanism in the past. What we will be looking to achieve above all else is the best possible financial return for our residents."

 View comments on this article

Comments on this news item have been closed.

If you wish to complain about a comment, contact us at press@wandsworth.gov.uk.

Recent comments

Wandsworth Council leading the way again
John

2 September 2011

This is very good news and another step towards 'localism'. Well done Wandsworth and good luck.
Dawn Temple

1 September 2011

Equally capital could be raised by selling the many "surplus to requirements" properties in Earlsfield. Sherwood Lodge, the Atheldene Centre, the Waverton Road Nursery, 80 Wilna Road Adolescent Resource Centre and 316-320 Earlsfield Road. All either are, or are soon to be, put on the market. And what about the Putney Hospital site that was bought to house a "potential" school? No news of that appears in Brightside. I hope Mr. Pickles manages to get local authorities to declare what property they own and declare capital assets publicly. It's OUR MONEY and Wandsworth's sitting on a treasure chest!
Celia Blair

31 August 2011